Eleventh Circuit Rules Alabama’s Sales Tax on Railroads Violates 4R Act; What’s Next?

by Bradley Arant Boult Cummings LLP

In the latest decision in the ongoing saga between CSX and the Alabama Department of Revenue (“ADOR”), the Eleventh Circuit U.S. Court of Appeals ruled that Alabama’s imposition of sales tax on diesel fuel purchases by railroads, but not on diesel fuel used by interstate motor carriers or barge lines, is discriminatory and violates the Railroad Revitalization and Regulatory Reform Act (the “4R Act”), 49 U.S.C. § 11501. CSX Transportation, Inc. v. Alabama Department of Revenue, No. 12-14611 Doc. No. 2:08-cv-00655-AKK (11th Cir. Jul. 1, 2013). This is a significant win for CSX and other railroads operating in Alabama. While it is unclear what the State’s next move will be, it appears that the ADOR has three options: (1) apply for a writ of certiorari to the U.S. Supreme Court; (2) stop collecting the sales tax on railroads but seek a legislative fix to fill the fiscal hole resulting from the lost revenue and to equalize the tax burden borne by the different modes of interstate transportation; or (3) simply stop collecting the sales tax on railroads and let the state’s Education Trust Fund take the revenue “hit,” leaving the railroads with a competitive advantage since their major competitors pay a motor fuel excise tax on their diesel fuel, in lieu of sales tax.

On appeal from the district court, the Eleventh Circuit held, in a 2-1 decision, that Alabama’s sales and use tax indeed discriminates against railroads in violation of the 4R Act and that the ADOR failed to provide a “sufficient justification” for exempting CSX’s competitors from the tax. The Eleventh Circuit adopted a narrow view, one that looks only at the alleged discriminatory tax itself. Thus, the court only looked at whether Alabama’s sales and use tax was discriminatory under the 4R Act, not whether the entire taxing scheme, taking into account exemptions and other taxes levied on the major competitors and not the railroads, was discriminatory toward CSX.

Finding that CSX’s major competitors did not pay Alabama sales/use tax on diesel fuel purchases, the court held that CSX had established a prima facie case of discrimination. This finding shifted the burden of proof to the ADOR to provide a sufficient justification for the differing tax treatment.

Attempting to justify the sales tax exemption enjoyed by CSX’s major competitors, the ADOR tried to show that CSX and its major competitors have roughly equivalent tax burdens when the entire taxing system is taken into consideration. The court rejected that argument, agreeing with the Eighth Circuit’s decision in Union Pacific Railroad Company v. Minnesota Department of Revenue that courts should “look only at the sales and use tax with respect to fuel to see if discrimination has occurred.” This narrower approach was adopted to avoid the “Sisyphean burden of evaluating the fairness of the State’s overall tax structure in order to determine whether a single tax exemption causes a state’s sales tax to be discriminatory.” After the court decided to look only at whether Alabama’s sales and use tax is discriminatory as to CSX, the court said its decision became “much simpler.” CSX pays the State’s sales tax on diesel fuel and its competitors, motor and water carriers, do not. Thus, the court held that the ADOR’s claim that Alabama’s tax code would “ultimately level the playing field” was not a sufficient justification for exempting CSX’s competitors from the sales and use tax on diesel fuel.

It is not known whether the ADOR will seek certioriari (due to the 2-1 ruling here and uncertainty among the circuit courts of appeal) or if it will accept the court’s decision and stop collecting the sales tax on CSX and other railroads. If they adopt the latter approach, not only will this ruling likely force the ADOR to issue refunds to railroad companies that have been paying the discriminatory sales/use tax, the Alabama Legislature may elect to step in, probably next Spring, to remedy the problem on a going-forward basis.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bradley Arant Boult Cummings LLP | Attorney Advertising

Written by:

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.